After Adani fiasco, Sebi pulls up designated depository participants on beneficial ownership norms

SEBI

The Securities and Exchange Board of India (Sebi) has shot off an email, asking Designated Depository Participants (DDPs) operating within Indian banks to update the beneficial ownership details of the foreign portfolio investors on-boarded as their clients within September 30, as reported by CNBC-TV18's Prashant Nair on February 6.

This direction by the market regulator assumes greater importance in the light of the scathing revelations and accusations made by Hindenburg Research against the Adani Group. Besides levelling charges of brazen stock manipulation and accounting frauds, the Hindenburg report stated that many of the funds investing in the listed Adani companies’ universe have concealed their ultimate beneficial ownership with nominee directors.

The market regulator has, in the email, taken an uncompromising stand. It chalks out that any FPI that does not divulge its beneficial ownership will lose its registered status which, in effect, will leave the FPI with no option but to liquidate its holdings and surrender registration by March 31, 2024.

By way of an example, consider a unit of a German or US bank operating out of Singapore or Hong Kong. As per the email, the beneficial entity will not be the unit operating out of Singapore or Hong Kong or any other tax haven but the final or end firm to whom the benefits from the transactions executed by the FPI will accrue.

Another critical aspect that Sebi's communique touches upon is the identification of the beneficial ownership. This clause will be applicable to an FPI investing in India with its own funds, which does not have any other entity or firm investing in it. In case none of the investors in the FPI crosses the 10 percent threshold, the statutorily mandated barrier, to be identified as the owner of the FPI, then ownership or control of the FPI will rest with its senior managerial personnel, who has to be clearly identified as the beneficial owner.

This is a CNBC TV18 exclusive by Prashant Nair.